Here’s a wake-up slap for all those out there who think the internet is a reliable source of money information.
(I’m not in the studio this week, so there’s no video version today.)
This is a sad one about a person who was one year away from retirement and had 90% of his money in his employer’s, General Electric (NYSE: GE), stock. He went online to Reddit for advice on how to manage it.
First, no one should have that much money in one place. No one! I don’t care how well the company has performed for however long or how secure the dividend has been.
I’ve written about this in my Wealthy Retirement articles repeatedly. It’s money suicide, pure and simple.
As if holding 90% of your retirement in one stock isn’t crazy enough, going to the internet for advice on how to handle it is bordering on moronic.
But that’s what this particular guy did. And the most popular reader responses were right out of the money funny pages.
One online genius advised him to “hold it… the dividend is secure.”
Another digital retirement “expert” touted the amazing income that the dividend would return and the fact that GE wasn’t going out of business.
Well, we all know how that advice worked out. The dividend was slashed, the stock dropped like a lead balloon, and Mr. “90% in one stock” compounded the issue by selling a few points off the bottom.
He lost a hefty $500,000.
That number doesn’t even include how much more he will lose over the next 10 to 20 years in dividends because of his new lower principal amount.
All of the warning signs about GE were there… but that doesn’t matter. Even if GE hadn’t lost 50% in value and hadn’t cut its dividend, holding that much in one stock is just dumb.
Diversification is not a hard concept to grasp. It is intended to keep you out of this kind of trouble. It assumes the worst-case scenario for every stock, and if it’s wrong, you have more money than you would have expected.
It’s one thing to hold too much in a position. It happens. But to compound it by going to the new bastion of crazy, uninformed, anonymous information from the internet? Come on, man, get real!
I push my readers to full-service brokers for a reason. Most need the help – especially if they’re new to investing – and I legally can’t provide the personal advice they need.
Yes, I know – the money business is full of scumbags who put their own interests first. But there are good folks out there who do the job the way it is supposed to be done.
Just remember: diversify or die.